The plunging cost of wind and solar power mean they will be cheaper than coal-fired generation in many countries within five years, and will provide a third of the world’s electricity in about 25 years, a leading analysis firm has predicted.
It gives a very different view of the energy outlook from the projections set out by large oil companies such as ExxonMobil, demonstrating the uncertainties that exist in any assessment of possible futures for the industry.
Bloomberg New Energy Finance, which compiles the most widely-used data on investment in renewables, says unsubsidised solar power costs less than electricity from new coal-fired plants in the US, Germany and Australia, and by 2021 will reach that tipping point in other countries including China, India, Britain and Mexico.
In its New Energy Outlook report, published on Thursday, BNEF predicts that by 2040, 34 per cent of the world’s electricity will come from wind and solar power, up from 5 per cent today.
By contrast, Exxon’s most recent forecast is that all renewable sources excluding hydro power will provide just 11 per cent of the world’s electricity in 2040.
Big oil companies including Exxon, BP and Statoil produce regular assessments of the outlook for world energy over the next 25 years or so, which are used internally to inform investment decisions, and externally to try to influence public and political debate.
The divergence of views about the outlook is a reminder that these forecasts are well-informed estimates rather than infallible predictions.
Oil companies argue the advantages of fossil fuels, including high energy density, ease of storage, flexibility and cost, means they will continue to dominate the energy landscape for decades to come.
Ethan Zindler, analyst at BNEF, said there could nevertheless be very significant changes in the global energy mix by 2040.
“Given the rate of change that we have already seen in the power sector, to assume a status quo scenario is a risky forecast,” he added.
Over the past nine years, the cost of wind power has dropped by 71 per cent, and solar by 83 per cent, in the US. BNEF projects these expense declines into the future, predicting that the levelised cost of electricity will by 2040 drop by 47 per cent for onshore wind and 66 per cent for photo-voltaic solar.
These price declines mean that in the BNEF forecast, renewables become increasingly competitive against both coal and gas-fired power generation, without any government subsidies.
On the BNEF projections, new large-scale solar power plants are expected to become cheaper sources of electricity than new coal-fired equivalents some time between 2019 and 2021. In the US, onshore wind and large-scale solar are expected by 2023 to become cheaper than new gas-fired plants, which are now the most competitive form of power generation.
The International Energy Agency, the government-backed research group, publishes scenarios for future energy outcomes that suggest that unless there is a greater policy push, the adoption of wind and solar power is on course to be faster than expected by Exxon, but much slower than is suggested by BNEF.
In its World Energy Outlook last year, the IEA published a “new policies scenario”, reflecting countries’ policy commitments including pledges to cut greenhouse gas emissions that showed renewables except for hydro power accounting for 21 per cent of world electricity generation in 2040.
However Mr Zindler said BNEF did not make any assumptions about new policies to support renewable energy in its forecasts of faster growth.
It still expects fossil fuels to provide a significant proportion of the world’s electricity in 2040, with 6 per cent of power coming from gas and 22 per cent from coal. Fossil fuels will be needed to back up variable renewable sources, and the existing stock of gas and coal-fired plants will remain viable for a long time.
However, BNEF expects that the great majority of new investment in the power sector will go into renewables. It forecasts $7.4tn of capital spending on wind and solar worldwide between now and 2040, about three-quarters of all investment in power generation.
BNEF points out that even if its projections are correct, the world’s carbon dioxide emissions from the power sector will be only about 4 per cent lower in 2040 than they are today.
To hit the trajectories that might be needed to stand a good chance of keeping global warming to the internationally-agreed objective of “well below” 2C, more radical action would be needed, said Mr Zindler.